As regulators put a price tag — $1.32 billion — on what Scott Tucker’s payday-lending enterprises have squeezed out of poor people, a grand jury convenes

Early in the afternoon on November 17, Scott Tucker raises his right hand. On the 12th floor of a Crown Center office tower, he’s about to give sworn testimony to government attorneys who have pursued him since at least 2012.

Tucker, the Federal Trade Commission is convinced, is the architect of a maze of payday lending enterprises, the elaborate corporate structure and misleading loan terms of which were meant to sidestep consumer protection regulations. (The FTC is a federal agency that acts as a consumer watchdog.) Customers of Tucker’s companies have seen $300 loans become $1,000 millstones around their necks — deceived, the FTC says, by the way his enterprises describe the cost of their loans to consumers.

The business has made Tucker one of Kansas City’s wealthiest men. The FTC believes that Tucker has made at least $419 million from his various enterprises, and probably more than that. He has used that wealth to fund a $1.8 million residence that abuts the Hallbrook Country Club, an $8 million home in Aspen, Colorado, various hotel and restaurant investments, and a $67 million auto-racing team.

Ioana Rusu, an FTC attorney from Washington, D.C., asks Tucker to spell his name and provide his address. He does. But that’s the extent of what the agency will hear from him on this balmy day.

“Have you ever been deposed before?” Rusu asks Tucker.

“Acting on the direction of my legal counsel, I invoke my privilege and right under the Fifth Amendment of the United States Constitution not to answer and decline to answer your question,” he responds.

The Fifth Amendment is one of the oldest rights for Americans. It protects people from incriminating themselves when testifying. It is more commonly invoked by defendants in criminal cases than by persons being deposed in civil cases.

“Mr. Tucker, do you understand that this is a civil case, not a criminal case?” Rusu asks. “And do you understand that in order to invoke the Fifth Amendment, you must have a reasonable fear of prosecution? Do you understand that?”

Tucker answers by again pleading his Fifth Amendment right.

His attorney, Jeffrey Morris, jumps in.

“I think you — from all the pleadings that have been filed seeking a stay of the civil discovery in this case, as well as our reasonable expectation that you coordinate regularly with the U.S. Attorney’s Office in the Southern District of New York — you realize and understand that Mr. Tucker is a target of a grand jury investigation into matters that are parallel with the same types of substantive matters at issue in this case.”

Morris’ statement confirms what has long been rumored: that a grand jury in New York is exploring whether the way Tucker did business ran afoul of the law.

Tucker goes on to decline another 439 of Rusu’s questions, according to a transcript of his deposition, each time citing his right to avoid self-incrimination.

In doing so, Tucker follows similar paths taken by his business associates who have been deposed in the FTC’s long-running investigation of a payday-lending business that took root in the Kansas City area and helped cement this town’s reputation as a nexus for this type of business. (See The Pitch‘s “The Usury Suspects” series, at pitch.com.)

As the grand jury sorts through Tucker’s complicated business schemes, the FTC continues to zero in on Tucker.

On January 20, the FTC asked a federal judge in Nevada to find Tucker and his companies liable for $1.32 billion. That sum, the FTC says, equals what Tucker’s customers have overpaid above the disclosed costs of their loans since 2008 alone. The FTC’s request to the judge was accompanied by thousands of pages of evidence, unsealed for the first time, that show how Tucker made his money, what he spent it on, and how he has attempted to shield himself from the glare of authorities.

[page]

Scott Tucker and his brother, Blaine Tucker, grew up in suburban Johnson County. Scott went to Rockhurst High School; Blaine attended Shawnee Mission South. In 1998, the two started a company called National Money Service, a payday-loan company. Scott Tucker had already managed a brick-and-mortar payday-loan shop, having gotten into the business after his release from prison in 1992, following a conviction for running a scheme that looted $100,000 from a group of investors.

Three years after putting NMS online, the brothers set up another company, called CLK Management, to market and service payday loans. It was a move that would have consequences. One of the Tuckers’ early investors, Charles Hallinan, had helped back NMS with the understanding that they wouldn’t set up other companies to compete against their original enterprise. CLK, however, was just that: an ostensible competitor to NMS. Hallinan sued, and the Tuckers eventually agreed to pay him $30 million to settle the dispute out of court.

Through NMS and CLK, the Tuckers operated a number of payday-lending brand names, including OneClickCash and FastCash500. As those names suggest, the operations took advantage of the fact that the Internet was doing for payday lending what television had done for football. Borrowers seeking short-term loans could now get them easily and quickly online and through call centers. And lenders now had electronic access to their customers’ banking.

Scott Tucker did not have difficulty marketing NMS and CLK to investors. Payday lending, he told them, had exited a stone age of mom-and-pop storefronts booking small loan portfolios, typically between $30,000 and $50,000. And consumers were benefiting from the decreased hassle made possible by the Internet. No longer would borrowers have to, as a 2003 NMS prospectus puts it, “physically bring the required documents into a store, fill out an application, give the store the supporting documents and wait for the approval process before they can receive a check, which must then either be cashed or deposited into their account before they have use of the funds.”

One of the groups that received this pitch was the tribal council of the Miami Tribe of Oklahoma. From 2003 through 2008, Tucker sought to establish payday lending operations in various Midwest tribes. By doing this, Tucker could shield his operations from state regulations on interest rates and lending rules while camouflaging his personal involvement in the business.

For the tribes, it sounded like a good deal. For no investment of its own, a tribe would get a cut — $20,000 a month or 1 percent of the businesses’ revenue. It needed to provide only an office and an employee.

Tucker wasn’t in the payday loan business for long before he attracted the attention of the FTC. As early as 2002, the agency sent Tucker a civil investigative demand to learn more about how NMS was conducting business and whether it had been deceiving consumers.

By 2012, it became clear to the FTC that Tucker’s loan customers were under the impression that a $300 loan, for example, would cost $390 to repay.

Ninety dollars in finance charges for a $300 loan amounts to a 30 percent interest rate. That’s not bad for an unsecured loan — one for which the lender has no collateral to claim if the borrower defaults on payments, as opposed to an auto loan or a home mortgage.

[page]

The obvious, bold print in a loan disclosure makes it look like that $300 loan will result in a total payment of $390. What’s less obvious, according to the FTC, is that such a loan continues to renew unless the customer takes several steps to halt it. Under this scenario, the FTC says, a $300 loan is likely to trigger $675 in finance charges, bringing the total bill to $975.

Tucker and his companies have maintained that the terms of the loans were clear and should have been understood by consumers. But complaints from customers and regulatory agencies started piling up, triggering concern among some of Tucker’s employees.

An August 2, 2011, e-mail sent to Blaine Tucker by Natalie Dempsey, an employee of AMG Services (one of the main corporate entities for the brothers’ payday-lending apparatus), describes the increase of complaints coming from regulatory agencies, including state attorneys general offices, the Better Business Bureau, attorneys representing customers, and customers themselves.

In 2004, according to her e-mail, no customers made complaints to AMG, but the company received 99 complaints from regulatory agencies. In 2010, she noted, there were 5,152 customer-filed and 1,509 regulatory notifications.

Blaine Tucker forwarded Dempsey’s e-mail to Scott Tucker, writing: “This is another reason we are continuing to hit the radar screen …”

“We have to brain storm,” Scott Tucker responded. “It is like we need a whole unit that is specialized in this [sic] deLing [sic] with this.”

Compliance and customer service weren’t AMG’s only corporate deficiencies.

In 2012, AMG hired an accounting firm, Squar Milner Peterson Miranda & Williamson, to analyze and attempt to keep straight all of the money going back and forth between Scott Tucker and his associated companies.

Squar Milner notes in its report that, though it wasn’t hired to audit AMG, the company’s books were a mess. The outside accountants found that AMG’s employees weren’t skilled at the type of accounting required to manage the books for a complicated business, and for file-keeping relied on QuickBooks — a software program designed for much smaller businesses.

The Squar Milner report affords a glimpse of how much money Scott Tucker and enterprises related to him made from AMG. From 2006 to 2011, AMG paid $163,534,000 to Tucker. Prior to that, he had received $22,844,250 from AMG’s lending portfolios. From 2012 through 2013, AMG sent $165,869,460 to a Kansas company called BA Services LLC, which, according to Kansas Secretary of State filings, is owned entirely by Tucker.

AMG paid another $67,622,500 to Level 5 Motorsports LLC, the corporate entity incorporated in association with Scott Tucker’s auto-racing team. The Level 5 team, for which Tucker is among the drivers, competes in high-end racing competitions such as the American Le Mans Series and the Ferrari Challenge.

Level 5 depended almost entirely on proceeds from AMG and other Tucker-related payday companies. According to a 2009 profit-loss statement, companies including FastCash500, AMG and Ameriloan paid $9.77 million to Level 5 for “sponsorship.” The only income for Level 5 aside from that $9.77 million amounted to $160,490 in prize money and the sale of equipment. In 2011, Level 5 was paid $28.6 million in sponsorships — much of which again came from AMG-related companies and affiliates.

One of the biggest burdens facing the FTC is proving to what extent Scott and Blaine Tucker managed and controlled these payday-loan companies and understood whether there were legal problems with how they ran the businesses. If the FTC can demonstrate that the Tuckers had direct involvement in the businesses, it might convince a judge to hold them personally liable for the $1.32 billion the federal agency seeks to repay consumers it says were taken advantage of.

[page]

Scott Tucker has at times portrayed himself as an AMG employee or consultant; other people hold CEO titles for the various payday-lending entities. One such person is Don Brady, who was listed as the CEO of AMG, appointed by the Miami Tribe in Oklahoma, which ostensibly owns the company.

After the FTC sued AMG, Tucker and a series of related payday-loan companies, Brady, according to court records, told his assistant, Carolyn Williams:

Brady: They’re Scott’s bank accounts. They’re not — we don’t write checks on them. We’d write some checks on some bank accounts that had those names on them that we’d run down there, but that’s — that’s all their money and it always has been. And, so, us laying claim to that because of the business model we’ve used is not correct….Everybody is assuming we have all these rights here and there. And the only thing that we have been involved in is giving our sovereign immunity to help protect all of Scott’s money and all of his enterprise and all of the — everything.

In another segment of that phone conversation, Brady seems to indicate that the money and portfolio do not belong to him:

Brady: But that doesn’t change anything. It’s still not our money and it’s not our portfolio.

Williams: Well, but we’ve represented that it is. We’ve represented that we own 100 percent —

Brady: I understand that.

Williams: — of that business.

Brady: I understand that.

Williams: And so —

Williams: But we really don’t.

Kim Tucker, Scott Tucker’s wife, is a defendant in the FTC’s lawsuit. The FTC describes her as a “part-time” employee of AMG — one who made $19 million.

The couple bought a house in Aspen, Colorado, a haven for the wealthy and famous, in 2009. They deeded their interest in the property to a business entity called 269 Park, which corresponds to the address of the $8 million house. According to evidence filed in the FTC’s case, AMG paid for all the maintenance, upkeep, real estate taxes and homeowners-association fees associated with the property, including a $4.6 million “investment” that AMG made to the property.

What else can you buy when you run a payday-lending machine?

According to evidence in the FTC case, AMG paid for Tucker’s Ferrari ($489,000), charter jet flights to his Aspen residence (he usually flew out of the Johnson County Executive Airport; one trip in 2009 cost $13,817), and chartered flights to vacation spots such as Valencia, Spain ($64,500 through Spirit Jets).

Blaine Tucker used his fortune in part to pay for plastic surgery, luxury boxes at sporting events and concerts, private jets and luxury vehicles. But he is no longer a defendant in the case; he committed suicide in Leawood in 2014.

The Pitch asked to speak to Scott Tucker through his attorney, Jeffrey Morris. Morris said that neither he nor his client could discuss the case. Morris said in an e-mail that he plans to file a comprehensive defense to the FTC’s request for $1.3 billion on February 26.

Morris, a partner at the Berkowitz Oliver law firm, is one of the handful of go-to lawyers in Kansas City for high-stakes civil and criminal cases. He was a lead defense attorney for former Westar executive David Wittig, accused in the early 2000s of looting the Topeka-based utility. Morris and other attorneys working for Wittig and co-defendant Douglas Lake eventually got charges against both men thrown out, after lengthy court proceedings and appeals.

Tucker’s case may be one of the most significant matters Morris has handled.

[page]

In 2015, the FTC settled some of its claims against AMG and related companies for $21 million. The FTC said at the time it was its largest recovery in a payday-loan case.

An award of $1.3 billion would far eclipse that result.